Guest Post: About Your "Guaranteed" Santa Claus Rally....

Will Santa Claus arrive in time to deliver his usual year end rally, or has he decided to trim his largesse to Wall Street this year and instead deliver lumps of coal to Bernanke, Geithner & Co.?

A lot of punters are awfully confident that Santa Claus will deliver his usual year end rally this year. A glance at a few charts calls that confidence into question. Let's take a look at a daily chart of the S&P 500. (Those of you who loathe charts, please scroll down and enjoy the pithy conclusion.)

While charts are as much a reflection of the reader as the market, several things pop out of this chart to me. One is the bullish flag in September. The On Balance Volume (OBV) was rising while price declined, a classic example of bullish divergence. Given this and some other clues (sentiment hit an extreme of bearishness, VIX spiked,etc.), then the rally in October was not exactly "out of the blue."

But when we turn to recent action, the indicators are bearish. OBV climbed to a new high, but price did not even make it up to the previous high--a bearish divergence. Now OBV has plummeted while price has skyrocketed higher, an extremely ugly divergence.

Meanwhile, stochastics are already overbought and VIX (not shown) punctured the lower Bollinger Band, and sentiment by some measures is either neutral or moderately bullish, all of which suggests complacency is once again the dominant emotion.

All these bearish signs have appeared just as price ran into the buzzsaw of strong overhead resistance: the 200-day moving average and the top line of a gigantic wedge formation, which typically breaks big up or down.

Given the lower highs--a classic sign of a weakening market--and the indicators suggesting this last manic rally has run out of steam, then we might reasonably conclude that the big break out of this wedge will be down--and perhaps in a major way.

Consider this chart of the 2007-2011 period from my Chartist Friend from Pittsburgh (who has shared both bullish and bearish charts with me). Notice the remarkable similarity of the pattern that preceded the 2008 waterfall crash and the current price action. Coincidence? Perhaps.

Perhaps the general blithe confidence in Santa's delivery of a rally is misplaced; perhaps he's decided to trim his largesse to Wall Street this year and instead deliver lumps of coal to Bernanke, Geithner & Co. It's something to consider.

I was about to say. There is nothing left in the market, HFT's rule it now. The article is correct, technically, but long term now is three hours. Attempting to plot macro move of TPTB is pointless, if GS or JPM or whatever squid member say there is going to be a rally, it's because they are moving the market where they need it.

Basically the Squid is running out of options as retail traders, hedge fund and now (I've heard) pensions are taking astep back from the conventional norm of equities. Everyone knows the fix is in, so there really is no point in playing when the game is rigged by CPU cycles and bandwidth versus the original reason for a marketplace, value.

I would suggest if anyone wishes to have a good Xmas, sell if in a positive position and do NOTHING. To a further extreme, close your trade accounts with the trade houses and stay out of it for a while. Once this all burns down, we will have the opportunity to rebuild it with certain counter measures in place to nuke auto trading bots remotely.

Actully here is a question.

What would we as traders and citizens need to make sure trades are all trades are completely transpearent?

For the bot traders, it would be easy enough to fix, captcha trade requirement with a certificate that checks the balance of the bidder to block all margin trades except for shorts where it is required.

Robo going all-out cheerleading for a rally...he needs it desperately as his last firm trade call was 'Im all in long here at DOW 12,700 watch this market rocket higher all you silly bears on this debt ceiling resolution passage'....oops.

true, you never know what the next miracle announcement followed by massive market infusions might be. However, at some point, the rest of the market players or at least a decent number have to jump in the pool or the numbers don't keep going up. That is where we are now, not enough players are convinced that 1300 is attainable and hence are sitting on the sidelines waiting for confirmation. It looks to me like the Fed is needed here but so far, no dice.

Robo still waits for 'the big rally'...he desperately needs to see DOW 12,700 again, recall where he went all-in long for the 'huge debt ceiling resolution rally' which resulted in a plunge to under 11,000...

"With gold and gold shares getting chain-sold after S&P put 15 European nations on negative credit watch, today King World News interviewed one of the most street smart pros in the resource sector, Rick Rule, Founder of Global Resource Investments. When asked about the latest move by S&P putting many European nations on negative credit watch, including France and Germany, Rule replied, “It’s astonishing. Obviously the rating agency’s perceptions have changed fairly drastically in the last couple of years. I think what probably precipitated this, Eric, had to do with the failed bond auction in Germany. The market may have been telling the rating agency something that the rating agencies didn’t already understand.”

Since we know these leaders are corrupt and assuming that it is already known what the final outcome will be and thus whispers are flowing through the cia/fed/senate etc should we fade what ever the trend is going into Friday? If it's a done deal/good news I would expect nutsach at nyfed to take the market down with bearish news out of the msm so that they can load up for the launch higher. On the other hand if they know they are all fucked do they leak positive spin out of msm while hft'ing the market higher as they cover and get short ? Or are they stalling as long as possible so that the bearish news comes in thin holiday markets and thus nutsach wont have to do too much heavy lifting of spoo? Maybe everything is being time so that the Euro collapses, and in the spirit of never letting a crisis goes to waste, nato invades Syria and Iran at the same time before bank holidays commence ? Or should I just keep drinking my cough syrup ?

Well done Charles. Just a waiting game from here. Must always remember the difference between markets now than anytime in the past is that tehy are purely manipulated at this point. Just have to wait for the system to overwhelm their capabilities and then it all turn to dust.

One scenario might be that a concomittant decline in both stocks and bonds might occur.

We haven't had any reporting on the recent 30-year treasury bond auction and at the same time, S&P resorts to placing even solvent countries on credit watch in Europe without the slightest hint of domestic foibles.

When everyone on CNBC is talking about a rally and even the perma-bears seem resigned to loose $, markets will fall. Everyone talks their books, and it means they are already in. If you are long and giddy you are wrong, if you are short and scared shitless, you are probably right.

When everyone on CNBC is saying game-over and the perma-bulls are shitting themselves, the market will rally. If you are long and depressed, market will rally. If you are short and are giddy thinking about the "next leg down" you are screwed.

I've never made as much $ as when I have trouble sleeping because I'm all-in and everyone on CNBC tells me Im about to be killed. When I have to go to the bathroom and vomit before I comitt that last dollar of capital, that's the best trade I make.

It's a tough life being an anti-beta chaser. You don't sleep, everyone is always telling you that your wrong, and you are convinced they are probably right and tomorrow you'll be living I'n a van down by the river.

The second your Huberis makes you feel invincible and the sickness and shakes go away - get out of the business. I'm looking at you Paulson.